tv Bloomberg Daybreak Americas Bloomberg August 8, 2019 7:00am-9:00am EDT
as bad yuan fixing. the s&p continuing one of its strongest reversals since the bull market began in 2009. how to chase the rally. ti says oil prices could fall to $50 or $45, but when the rebound comes, it will be fast and furious. david: welcome to "bloomberg daybreak" on this thursday, august 8. we spent a you -- lot of yesterday thinking the markets were awful, and then it turned around. alix: this morning it is hard to believe anything you are going to see on your screen because of the action we saw yesterday. let's take a brief look at where we are in the markets. s&p futures are pretty much flat. up by seven, so a little bit of follow-through buying, but nothing to write home about. a little bit of buying in the long end. selling in the bond market.
no surprise. that risk on rally. it felt like oil helped in some ways to turn the market around, too. you had a sloppy 10 year auction and reporting from bloomberg that said saudi arabia is hey,ng its buddies, saying we need some help. david: the u.s. will report jobless claims for the past week. at 1:00, the u.s. treasury will auction $19 billion -- $19 million in 30 year bonds. cbs and yelp will report quarterly earnings. we are joined by luke kawa and michael mckee taylor: -- and michael mckee. let's start with that china data. as you know, exports actually went up. theiris another line on
on the imports which shows they are negative, but better off than it had been. michael: the numbers are a bit of an anomaly because we did see in june president put additional tariffs on. economists are expecting this to turn around because of the threat of new terror -- of new tariffs. bloomberg had a very interesting story yesterday that said warehouses in the u.s. would fall. not chart where you put anything. alix's closet, maybe. [laughter] michael: there's a more interesting statistic i saw any chinese data, and that is their foreign reserves. a decline significantly, just above $3 trillion now. that suggests they have been losing reserves to capital flight. going down,n that is one reason possibly why the bank is setting fixing at a very slow move because they don't want to encourage more
capital flight. luke: a silver lining to the trade data, too, but chinese imports of commodities had a big jump in volume terms. we look at the headlines. not a good impulse for global growth. in that commodities aspect, we see a sign maybe that is starting to turn around. maybe we start to see that stimulus that's apparently been in the pipeline for six to nine months. alix: on the flipside, they are not going to buy anymore soybeans from the u.s.. if you come inside the bloomberg, this might be one of my favorite charts, the inverse correlation. as the yuan moves lower, so does the s&p. even though we get some calm in the market, we are still past seven. how can we have upside stability for equities? luke: we could have reacted in anday to yesterday's fix
been able to build a story out of it. either everyone freaked out that we pass seven, or everyone is happy that the fix was not as weak as it could have been or should have been. so i think it is much easier to latch onto that point and remember that too much currency weakness is not in china's best interest, or if we talk about the mismatches in some key sectors, it is something that at least pushes this and turns it back from 11 to a six on the yuan fixing. michael: we were kind of looking at this the wrong way. it is very complex, but everyone has talking about the yuan going down, and it is the end of the world. the end of the world isn't going to come if china starts to grow faster. if the yuan is going down, that will help chinese exports and growth, and that will be good for the rest of the world. it might not help us, but it will help brazil if they are buying their sore beans. it helps the world -- they're
soybeans. it helps the world if china is growing faster. david: let's turn to the s&p right now and show you the futures of the last two days. to deal a straight -- to illustrate what alix and i were saying earlier about the last two days, what happened? luke: absolutely no idea. if there's one takeaway we can is not onlyis, it don't trust the market, but especially don't trust the futures market. when we think of the panic moves we've had recently, recently it will always stick in my head the session after george bush's funeral. futures lie to you. liquidity is so bad that some of these moves won't be explained. michael: luke said it all. alix: but there was the bond sale, right? the 10 year was a little bit
soggy considering buying in the market at the moment. michael: i'm not an expert, but all of the experts have said basically the markets have gotten way out over their skis, including in the bond market, and suddenly they snap back to reality. one thing that is true not just of the equity futures market, but bond market, liquidity is less. trading is thinner. there's a market there, but it is not going to give you the same picture. i know we come in at 5:00 and see futures down, it is going to be a terrible day. get to american traders their desk and it starts to rise again. alix: it was completely the opposite today. luke: almost the opposite is true in the bond market. essentially, bonds selling after auctions. we worry about the lack of foreign demand for american debt. an overnight come the foreign demand we were worried about takes yields lower. we've seen this at least six or seven times in the past couple of months, so i think that is something to keep in mind, to
take more of a 12 hour look in terms of a two hour look in terms of how we digest this. alix: the other thing we were talking about is oil prices. here's the daily percentage move when it comes to the oil price. it's been a really traumatic five days for oil. yesterday, the headline that bloomberg broke, what is going to be the economic sensitivity to oil? how much of a leader will it be? michael: it is not a leader, it is a follower. last couple of days, the rest of the markets have priced in the end of the world, growth falling off, and in those circumstances you are going to need less oil. as the market starts to turn around, they say maybe we are not falling off a cliff, and you see oil prices stabilize a bit. then you see a headline that they may take action, and people think we may have gone too far with this. i'm not sure what action they would take. do they really want to change
production quotas on the back of ays of bad market data in the u.s. and the world? at this point, i think the oil market will probably follow the headlines more than any actions they need to take. david: overall, we are trying to find out something from the rest of the world on what is going on, including in oil. when do you say they are maybe -- maybe behind the curve? -- maybe behind the curve? some people already say a recession is coming. luke: a lot of the action seems to be corroborating, along for the ride. what is interesting about these headlines we got yesterday and the effect they had on markets, if this has the ability to these some of discrepancies between stock and high-yield bonds recently, obviously you see the high-yield spreads. they didn't get tighter until these headlines hit. inasmuch as we know oil is always a part of high-yield, and
as we worry about credit being the smart money, this is something that would help you sleep at night a little better to the extent that energy prices can recover and both it -- and bolster that asset class. crazy. alix: crazy. i think we have to end it on crazy. luke kawa and michael mckee, think you so much. go to gtv on your terminal. browse the features, check it out. gtv . coming up, stocks rallying back to 2%. is the turmoil over? jeffrey kleintop and rick bensignor will be joining us next. this is bloomberg. ♪
alix: the s&p erased a loss of about 2%. the reversal of these sharp declines as investors concerned about more volatility i had. joining us now, jeff kleintop, charles schwab chief global investment strategist, and rick bensignor, the bensignor group ceo and founder. the bensignor group is up 69% this year. you got the crazy reversal yesterday. what do you do on a day-to-day? >> you actually watch. you don't do anything. you check to see if the s&p can 2932.ove 2910 to about we did bounce off a very key levels. we can pull up and s&p chart, but with the bloomberg, if you do s&p index goc and pull up a
cloud chart, yesterday's low and the day before's blow held cloud support. we haven't truly broken down yet. on the weekly charts, we told you need to close beneath on a friday. what we have done is north of 3000 for the last couple of weeks, we've been telling clients to lighten up. we've had a 3032 upside target. 28, with multiple models that said it is time to lighten up. there's upside exhaustion here. so we were able to reduce exposure a fair amount before the decline. the tough thing now, of course, -- withthe versatile the reversal we saw yesterday. is it a big bottom? is it a two day bottom? actually telling people, you
don't have to trade every day. you don't always have to do something. give the market a little time to settle in. david: just to prove we can do it, here's your chart. alix: oh my goodness, you did it. david: i spent some time this morning learning about the cloud. i don't understand all this, but basically, what it says is we are not there yet in terms of being really worried. is that right? jeff, where are you on the s&p? jeffrey: we are concerned there's more volatility to come. if the fundamental backdrop was more robust, maybe i wouldn't be as concerned. abi would be looking for an opportunity to buy. but at best, profits are flat year-over-year. manufacturing pmi globally is 15 months of declines, and showing no signs of turning around. that is a further bad omen for profit growth. we have consumer confidence increasingly vulnerable. cfo confidence very low. they are not making very many
expenditures. this is not a robust backdrop in the face of what is likely to be more escalation of the trade war, concerns about a currency war, further geopolitical in the southher china sea or the strait of hormuz. there are a number of factors that i think will lay on this market and the second half of the year and continue this -- that will weigh on the market in the second half of the year and continue this uncertainty. think there's so much top in this market, you're simply going to swing the market around and trying to judge what goes behind closed doors in different parts of the world is very difficult to do. what you can do is look to take some shelter from this trade storm. europe has done better lately, including yesterday, really in
the last week or so since the trade tensions between the u.s. and china have re-inflamed. europe is a little bit shielded from the trade tensions. may be auto tariffs are pushed off a bit given the renewed tensions. plus, europe has got another thing going for it, and it japan as well. we got the 2020 olympics next year. a number of factors might insulate them from a growth perspective. they both have better earnings expectations than the u.s. or china as we look over the next 12 months. that might offer some solace for investors looking for shelter from the storm. alix: it also gives the point of value potentially. the u.s., materials did where do you look for yield? rick: i think financials are
still in trouble. despite the fact that financials have gotten blasted, i still think there's more trouble there. alix: does that mean you see 10-year gilts going to what? rick: with the bounce yesterday, we are starting to get close to the long-term double bottom near 1.4. yesterday we cracked under 1.6. we got a bit of a bounce. it is tough to sell bonds and pick the top. at the same time, if you buy bonds, you really have to commit to the entire idea that yields are still going to dramatically drop because as a trade, you can't manage your risk. you have to risk 30 basis points and get above 1.95 to even think i'm wrong. you stille, i think leaned towards the defensive sectors. tech's come in a little bit, but
tech is everyone's favorite. it has become the replacement over the last 10 to 20 years of what industrials and transports were back in the day of charles delaware. that was the growth for your economy. tech,ody wants to keep in and i tend to agree. david: jeff kleintop and rick bensignor will be sticking with us. coming up, a deal still appears --be in the works for bar, for broad and symantec -- for broadcom and symantec. this is bloomberg. ♪
started in the lucrative market for server chips. ofan easing up on curbs semiconductor material exports to south korea. last month, restrictions were put in place, escalating long-running disputes that go back to when korea was a japanese colony. a potential he big deal in the cybersecurity industry. bloomberg learning broadcom is near agreement to buy a semantic unit that serves large corporate unitmers -- a symantec that serves large corporate customers. that is your bloomberg business flash. david: taking us through that deal we were just talking about, welcome our bloomberg correspondent. why would this deal fail? reporter: it limits the scope of the purchase. it sort of refocuses broadcom on the enterprise segment.
remember, they made a purchase several years ago that expanded their semiconductor franchise into enterprise software. that business. there is decent customer overlap. they could potentially sell more to the same customer segment rather than trying to buy symantec kitten caboodle -- kit and caboodle. both of them are suffering from revenue weakness, and both of them need arjun improvement. in that respect, the purchase -- need margin improvement. david: at the same time, isn't it an overwhelming majority of symantec if this deal goes through as described? left is theis
consumer antivirus business. that business, and our minds, is struggling a little bit more, and will have a harder time finding a home, potentially at an attractive valuation, but in our mind, this is the more lucrative of the two pieces. david: is this an adjacent business for broadcom? into software -- is it expanding into software? andd: semiconductors software are birds of two slightly different feathers, but they expanded their business into software, albeit sort of old-school legacy software, mainly focused on the mainframe. alix: really appreciate it. thank you very much. still with us is rick bensignor of encino group and jeffrey
kleintop of charles schwab -- of bensignor group and jeffrey kleintop of charles schwab. what do you think of the moment and play that's been unwinding over the last few weeks? in the past, when we get a yield curve inversion, that usually is a sign we are near the peak in that cycle. we have seen this for 50 years. we get inversions, we see leadership begin to shift. tech has probably come close to the end of its very long run. alix: rick, you have different feelings. is there a certain area where you feel like that makes the most sense? a lot of people look at the leader in an upmarket or a down market. i think the top in the s&p is in for some time. i'm not jumping into semis here. it'sm going to buy them,
at a lower price. jeff, to what extent does this depend upon capital investment as a practical matter? that companies have to go out and buy more tech? jeffrey: that's a huge part of it. the unsexy side of technology, we know about the consumer side and internet stocks, but the business side is critical to driving the tech sector, and we just haven't seen that. in june of this year, a survey showed most cfos expect a recession next year across all regions of the world. they are not encouraged to make those capital outlays, know-how -- capital outlays, no matter how far central banks lower interest rates. i think we've seen expectations for the tech sector really deviate from the rest of the
expectations for earnings for other sectors. we are seeing manufacturing look fairly weak. earnings expectations, the early outlook for many inditex game remains robust -- in the tech game means robust as if they are cyclical. alix: you guys are going to be sticking with us. coming up, oil rebounding off a seven month low after bearing the brunt of escalating trade tensions. we are going to discuss the outlook for global growth and what it means for commodities. is there still room to buy gold after it kissed that $1500 an ounce level? this is bloomberg. ♪ hey! i'm bill slowsky jr.,
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excuse me?! what? i don't know your phone number. aw well. he doesn't know our phone number! you have our fax number, obviously... today's xfinity service. simple. easy. awesome. i'll pass. alix: this is "bloomberg daybreak." recovery after yesterday's very whippy action in the market. i question how much steam it is going to gain. 1%,jones futures up 1/10 of
s&p futures u 2/10 of 1%. in other asset classes, it is confusing. do we go from here? you have a broadly weaker dollar story in the g10 space, except for the swissie, which finally gets a day off and gets to go a little lower. still -58 basis points on the german ten-year. you can make a lot out of an upside when it comes to oil at 2%. equities stabilizing, but the curve is still deeply inverted. david: sometimes, that is the biggest predictor of a recession. it is so far in negative now. alix: it is like we are in a totally different than what we are used to world. oil rebounding after its lowest level in seven months, but it's been a brutal couple of days for the markets. this is the price change on a one-day percentage level. we saw yesterday and 8% slide. still with us, rick bensignor of
bensignor group and jeff kleintop of charles schwab. oil. what do you do? rick: yesterday we got the same low is about a month ago, and got a good bounce. there is support in the low 50's, and if we take out the double bottom between $50 and $51, we probably crack to $48 or $47. i don't think most of the marketplace is expecting that. i got a tremendous amount of pushback when i was on with you months ago saying the high and oil was in. we said that is the cyclical top in oil. i think the funds have been whipped around like crazy recently. i myself got caught long the day of the tweet. $0.10 lower than the trade, just trying to do a day trade. i look at it, and i am down one
dollar in less than 30 seconds. i mean, it was a bad day. alix: it was a really bad day. to that point, goldman sachs came out a note today on how we find a bottom, blaming the technicals and a lot of hedging for why we saw the big decline in oil prices. alsoe flipside, goldman ins up saying it is going to be a resilient consumer that trumps any weakness in manufacturing, and are reflecting weaker global growth than israel. what do you say to that? jeffrey: i don't know. if you look at the global consumer, we are starting to see some chinks in the armor. for example, auto sales. asia, europe, and the u.s., auto sales are pretty weak. deferrable consumer purchases, and they are deferring it. that is a sign that consumer confidence isn't as high as they are telling us it is in the surveys. is back at the peaks we saw head of the last three recessions as we are perhaps headed into a
downturn, as many factoring continues to soften. layoffe see those announcements translate into a weaker job market that could turn around a weaker consumer and further downside to oil prices. david: i'm going to borrow a chart that you put in your note that basically tracks pmi's for the u.s. and globally. this is the 30 year treasury. it is actually a jeff kleintop chart that tracks it against recession and the downturn on both of them. how worried should we be about what the downturn in pmi's are telling us globally and in the united states? jeffrey: i think we should be pretty concerned. this is the third mini down cycle in the pmi this cycle. that's what happens. we get a big downturn, and then we are at that point. i think we are extended to that point. we need to be genuinely concerned. 15 months in a row of the pmi is a record.
is a longer decline, and certainly has worsened. alix: and gold has been a tertiary of all that downside, breaking $1500 an ounce. do you want to play gold as yields grind lower? rick: we actually yesterday exited our goal trade we have been long since march -- our gold trade we have been long since march. people already tell me not to get out because everyone is bullish gold, and rightly so, given the massive breakout above the upper 1300s, which it peaked at for so long. 437 is where gold broke down from in 2013. look to put it on lower. david: in another world, which
we don't have now, on a lot of occasions you would see a recession coming the matter what. the yield on the 30 year is touching close to a record low. is this just a different world and we shouldn't pay attention to those? or are all of these indicators pointed in the same direction? jeffrey: i think enough of them are pointing in the same direction that there is certainly a heightened risk of recession. have toinly knowledge that some things are different, given the manipulation of both ends of the curve by central banks around the world. there's always extenuating factors that make every cycle a little different. on the cusp ofre perhaps a deeper and more prolonged downturn, but this isn't like 2008 or 2009 we've got years of a downturn. i think this is a more sharp and shallow, and maybe even
something like we saw in the fourth quarter. stocks fell 19.5% to the bottom and began to rally back again. these short and sharp moves might be something investors would be wise to be prepared for in their portfolio. alix: yes, gold could go higher. we talked about yields before, but if you have piles of negative yielding debt continuing to grow, where else do you offset that? look, istill like -- think the market is going to pull back. i agree with jeff. if we have some type of recessionary bigger pullback, i don't think it is going to be as bad as what we've seen in the past. i don't even like we take out december's low. yesterday'sake out low in the s&p? absolutely. for months, we knew rates were
going lower. we just happened to keep going lower. but that is not new news. the change in the market was not jay powell's fomc announcement. it was the trump tweet. this who is going to bully who more continues, the market is going to stay under pressure because that is the one thing people didn't expect, additional tariffs. that really change to the game. david: we've all been focused properly on what is going on between the u.s. and china, and with the fed on the other. is it possible another long-term trend is demographic? is it possible the whole world is changing? there's a piece in the bloomberg today about the time preference. people would rather have their money in the future than now. from a debt standpoint,
demographics or something we have to watch out for. i would keep out an eye for japan in this regard. they are very much sort of a closed economy in that sense. it is a sense of how they finance their deficits. watch japan. they came up with zero interest rates first. first.me up with qe it might be a real lesson for the rest of the world. alix: and what else do they buy in the stock market? guys, really appreciate the conversation this morning. rick bensignor of the bensignor group and jeff kleintop of charles schwab. stay with me later on for "commodities" this afternoon -- for "commodities edge" this afternoon. there's a contentious debate among farmers and the farm bill. david: they are not happy. alix: so we will talk about that. david: now let's get an update
on what is making headlines outside the business world. viviana hurtado is here with first word news. viviana: the trump administration is rushing to finalize a list of chinese products that will face new tariffs next month. at the same time, american companies are making last-ditch appeals, seeking to scrap the tariffs altogether or drop items they import from the list. warning trump against supporting expanded background checks for gun purchasers. ceo wayne lapierre calling the president after last weekend's mass shootings in texas and ohio. nra members comprising an important part of the president's political base. in italy, deputy prime minister matteo salvini is ratcheting pressure up on the coalition government. he wants his five-star partners to yield to his policy demands. if not, he could dissolve the party sharing agreement.
global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. on the v-mart auto. this -- i'm viviana hurtado. this is bloomberg. david: there's a shocker. we might have another new government in italy. alix: it would only be number 62 since world war ii. that seems to make some sense in the world. david: mr. salvini did really well in the european parliamentary elections, and he's saying i should get some credit for this. alix: what i find staggering is even with the selloff, 1.5 is where we are in the 10 year in italy. david: mr. salvini says, why should i be worried about deficit right now? alix: absolutely right. there's no market incentive for him to get his act together. david: exactly. alix: coming up, we take a look at who's winning and who's hurting.
profits missing estimates. uber responding to a european crackdown on offshore tax havens with a multibillion-dollar strategy. the ride-hailing service created a six-point billion-dollar touch tax deduction -- a $6.1 billion dutch tax deduction. move over, eiffel tower and shop elysees --and chumps .nd seamus elysees the museum's director telling "the wall street journal," "we can better understand the economy." that is your bloomberg business flash. alix: because i really want the french to tell me how to run my economy. [laughter]
david: the museum is so backward looking. it is extraordinary. they've got a treasury section. they play charlie chaplin for it. did they charge admission? alix: probably. to be fair, this is the only time i could teach my husband about economics because he loves paris. david: i just imagine telling my kids, we get to go to paris. we get to go to the museum of the economy. alix: maybe spice up the title a little bit. [laughter] david: good for them. it looks beautiful, by the way. now we turn to wall street beat. first of all, softbank's ipo visions. he in a 100 text dollars million deal -- in a $160 million deal.
investors rush into passive investments. alix: joining us is sonali basak , bloomberg banking reporter. softbank came out with earnings, but what stood out is what they said about ipo's. startn we will spinning off companies. in this fiscal year, five to six companies will go public before april 2020. the number will be bigger each fiscal year going forward. sonali: i think it is a little earlier than we all expected. he told a roomful of bankers and private equity folks. be -- equity folks he would be taking companies public next year. softbank is already getting money for its second vision fund .
the question for me, are they going to wait to go public so late, or are we going to see some earlier exits? david: it is bucking the trend a little bit because it seems people were staying private a lot longer. sonali: on one hand, i think they will be happier to see public companies a little earlier and enjoy some of the gains, but on the other hand, are they exiting just for the liquidation that comes with these investments? alix: is it a market that is strategic for the ipo, or is it going to cash in now? sonali: and if we work doesn't go well later this year, and look at the markets. this is not a very easy goal. will helpthey do, it them on their next round. alix: do they need help on that? sonali: that's the way to market the next fund, to do well on the first one. david: let's turn now to bluemountain. i think of bluemountain as sort
of a high flyer. they were a high flyer, but also covered the insurance industry. $40 billion of capital worldwide. boring, sleepy industry. however, just searching for yield. i think we will see more of these types of deals as more funds go under pressure. 2003ountain was founded in . associated managers had a stake, and increased their stake, although more recently, affiliated managers had to take a right down on this investment. it is kind of a nice closure for both affiliated managers and for bluemountain. david: in fairness, blue mountain not what it once was. sonali: that's exactly right. they had to shut down a one billion-dollar fund and fire a couple of managers. alix: this is a perfect lead into our third story, which is trillionagers with $74
on the brink of historic shakeout. it is basically active versus passive, and that goes into bluemountain and why the go into assured guaranty. sonali: the thing that is interesting about this story is even the good funds are not doing that well. something they showed in the is, you see them compared to a fidelity index fund, and it is almost parallel in terms of outflows and inflows. david: if you look at the overall market, how much of it is active and how much is passive? passive is still a relatively small portion. sonali: especially across the world. but with that said, it is really the fees. being that they are larger in passive, i think a lot of active managers are kind of excited about the choppiness of the markets because it everything is
going up, passive is the way to go. but if things start to get rough, these active managers are saying maybe it is time that you invest with us. i also have to wonder how likethe passive funds fidelity, what the repercussion of that has actually become. sonali: the funny thing is we are talking about blue martin, which, you need to be able to cover a cost minimum to be able to be successful. that's why i think we will see a lot more mergers for folks to keep their costs down so they can charge customers less. david: thank you so much for being with us. that is bloomberg's chanel he best. cup -- bloomberg's sonali basak. coming up, equinox and soul cycle face a backlash, turning political. alix: if you are jumping in your car, tune into bloomberg radio across the u.s. on sirius xm
david: this is what i'm watching. numbers of equinox and soul cycle are threatening to boycott the gyms after news that the chairman stephen ross will be holding a trump fundraiser at his house in the hamptons. i think the smallest ticket is $100,000. a very well-known, well-respected real estate developer. did the hudson yards project that we covered extensively. stephen ross owns a good chunk of equinox and soul cycle, and he is chairman. at the same time, the head of soul cycle came out with a letter. part of what she said is, "soul
cycle has nothing to do with the event and does not support it. she is distancing herself as much as possible, saying he is a passive investor and we have a different point of view. alix: is this unusual? david: i have to think about it, but i think so. everything has gotten so political at this point. we associate anything anyone does some sort of politics. alix: he didn't back down. david: he said, i believe in some of what trump is trying to do. i am not with him on a lot of things, and i will tell him when i disagree. so i am not endorsing everything president trump does or says, but i believe in progrowth. i believe in deregulation. things like that. alix: what i'm interested in is if it works in some capacity, do --sumers who use these who use these gyms, are they able to move then you will or
not -- move the needle or not? there were some well-known celebrities tweeting that they would quit, not going to do it. .o it is which people like walmart saying that it is not up to the government. david: it is not just what you do. it's what the people who associate, what they do. so walmart, i'm talking about the people you do business with. like a secondary boycott. that seems to be en vogue. alix: i'm not sure if it is actually going to work. which also leads me to the overall fundraising conversation. where are we in that? david: people are bringing in record amounts of money. bernie sanders's number one on the democrat side, but trump is
just dwarfing everybody. alix: even if you add all of the democrats together. david: absolutely. part of that is trump is raising for his campaign but also for the republican national committee, and no one has contributed to the democratic national committee because they are contribute into individuals. as a result, the republicans are building up their ground game, apparatus, infrastructure, and the democrats don't have as much money as a party. alix: interesting. coming up, we are talking to david kostin, goldman sachs chief u.s. equity strategist. what do you do after a big reversal in the s&p, one of six in the last 10 years? this is bloomberg. ♪ ♪
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the s&p continuing one of its strongest reversals since 2009. how to trace the rally. and oil is just a downer. goldman sachs says the market is pricing in too dour of an outlook. we will speak with the chief u.s. equity strategist on his outlook. and calls increase for lower yields in the u.s.. ,e speak to howard marks oaktree capital cofounder and cochairman. david: welcome to "bloomberg daybreak" on this thursday, august 8. in the last few moments, we have quarterly results from kraft foods. it is not out of the woods yet. it appears they had to take some further write-downs on intellectual property come on their intangibles. earlier in the year, we had an sec investigation. we got a new ceo. impaired value of some of the
intangibles. kraft heinz food is down right now. as you take a look at the position of what happens in sales, down over 5%, a big part of that was pricing impact, and an even bigger part with currency impact, which is almost 3%. the dollar andt what kind of action we will be able to see, that is a feedthrough. this is what you wind up seeing to u.s. companies that we've been waiting for. david: it is exacerbating an underlying problem. this is a warren buffett backed investment. it turns out these brands are not worth as much as you thought they were. you at the currency, it is not a good combination. alix: and overall the changing taste in such. in the markets, we are rebounding from yesterday's with the action, but will it hold? flat.ollar pretty much
it is a broadly weaker dollar story. maybe you're seeing the little bit of carry trade to really feel that out. in the u.s., still seeing some buying in the long end. to me, it was the weaker tenure auction yesterday and our report that saudi arabia is talking about stemming the oil crisis rout. david: it almost sounded like a tinge of panic to say, wait a second, we are well sort of our quota, but we've got to do something here. alix: it shows there may be real concern about demand. the 30 year auction coming, so we will see if that works. outside the business world, at 8:30 this morning the u.s. will report jobless claims from this week. at 10:00 we get job inventories numbers.
uber, cbs,ell today, lionsgate, and yelp will all earnings. now it is time to find out what's going on outside the business world with viviana hurtado. signs ofthere are recovery in chinese trade just in time for new tariffs from the u.s.. the trade surplus with the u.s. rising 11%. president donald trump says next month, the u.s. will impose a new 10% tariff on an extra $300 billion of chinese exports. the nra warning president trump against supporting expanded background checks for gun purchasers. bloomberg learning nra ceo wayne lapierre calling the president after last week's mass shootings. nra members comprise an important part of the president's political base. there's a potentially big deal in the cybersecurity industry.
broadcom is near agreement to buy a semantic unit. the price, roughly $10 billion in cash. s attempt to buy all of symantec failed. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. ♪ results have been mixed. you wind up seeing continuation of the rally. others you see backtracking to a selloff. joining us is david kostin, goldman sachs chief u.s. equity strategist. lowered their cast for 2019 and 2020. your 2020 outlook, 3400 also. action like yesterday, how do you look at it? we have looked at
earnings that have been modest for this quarter, and look out for the next year. we need to grow around 3% relative to last year, but bond yield cap, your difference in valuation between fixed income and equities is extraordinarily wide, getting close to where they were at the peak of the financial crisis. earnings yield in the market is around 6%. and threes, one quarters percent. wide, so long-term averages about 230 basis points. that's one way of thinking about the difference in what is happening with financial markets. david: 2 explain this to me. david w: explain this to me. do i think your future earnings are going to be worth that when i get it back?
typically i think that it's more of a fundamentals issue. a frameworknk about for investing your money. you've got the earnings. you have some valuation. you have money flow. the more fundamental driver, the .etter the indicator that is revenue growth. then it gets to earnings. think about revenue growth basically rising in line with nominal gdp. if the u.s. grows roughly to present, 2% inflation proximately. traditionally we report revenue growth around 4%. we are unlikely to get a recession. that is the fundamental part of the earnings front. and then the valuation. the gap between fixed income and equity is is very wide.
what is the alternative? in a world when equity prices were very high, maybe less so, but now they've come down meaningfully. almost all of the run-up, 20% rally in the u.s. stock market between january and april, was valuation expansion, not fundamentally driven. so now the valuation is more in line with where you are fundamentally. alix: it feels like the difficulty is to know what the fundamentals will be. had tolyst over at citi downgrade his forecast, but kept his target. "growing protectionism is not conducive to better earnings." how do you deal with the fundamentals when you don't know the trade? david k: think about goods producing companies versus services providing.
services providing companies are thss subject to tariffs, bo tariffs on imports and retaliation tariffs. iced -- more stable as more stabilized growth. google, microsoft, amazon as examples of services providing companies. domestic orientation, so the idea of a retaliatory trade war, if you are a verizon or at&t, your revenue is almost entirely domestically generated. if you seek about some of the payroll processors, those companies are generating revenues domestically. so the biggest concern we would have is some of the global overall growth. relatively speaking, you have better opportunities in the united states. david w: to what extent are we
really depending on the consumer to pull us through this? david k: 70% of the u.s. economy is consumer. we have real wage growth for the first time in many years. those are the arguments behind why the economy will continue to grow. alix: a sort of basic question. do you by what has been working -- do you buy what has been working? tech was working, and then it wasn't into the last round of tit for tat's. what do you do where valuations have come down? technology has a lot of different parts to it. you have the hardware companies, also more susceptible to trade. and then you have software, much less sensitive to that issue, so where is there likely to be continued demand? cybersecurity is an area only
increasing from a secular point of view. you have to focus on extremely high valuations for some of those, but generally that is a termstable, more visible behind what leads the stock price higher. that sort of software is more preferred. david w: one last round on the overall valuation marketplace. give me an over under on the trade pursuit. assume the resolve at some point tomorrow. what is the over and under on your number? david w: you could trade that on plumes --david k: you could trade that on bloomberg. what the probability of a trade bill is based on the equity market. right now there's a 12% of a deal. how do you define a deal? the probability would suggest,
and the wood -- and the equity market is predicting very low probability. baseline expectation of no deal between now and the election, so it is very low, both in the equity markets and from a political viewpoint. david w: thank you so much. david kostin is going to be staying with us. coming up come of trade war hits commodities. we take a look at the health of energy stocks. this is bloomberg. ♪
second-quarter operating profit missing estimates. adidas also reaffirmed its target for this year after investors considered the target conservative. germany's slow down pushing the industrial conglomerate deeper into a crisis. to some group will go ahead to thyssenkrupp- to will go ahead listing its elevator unit. a saudi arabian official says the kingdom discuss production options. they have already produced more than required under the deal with opec and allies. alix: thanks so much.
in part, that helped stabilize the market yesterday. and goldman sachs overnights has the selloff may be overdone. if you took out one of -- if you take a look at one of the notes, it says, "we believe oil prices are reflecting too dire growth expectations. towth is low enough today remain to the upside in our view. " so how do you look at energy if we have seen a lot of volatility pickup in the sector, but no doubt it is a value play and we could see more upside for the price? david k: really, we are talking about energy stocks. they are less enthusiastic in that sector right now. trade?s that a relative david k: energy versus virtually anything else. [laughter] david k: there's some areas of the market that are likely to continue to grow and benefit
from economic expansion, and some better less likely to benefit in our opinion. part of it has to do with where they are more visible. where do you get more secular growth? the economy will get more of the services side of supposed to goods producing, so that would be the headwinds. in terms of all of the analysis of what drives sales for these companies, it is likely to be down lower than expected. alix: can we extrapolate that in terms of a broader value versus gross call, the -- value versus growth call, or will it still be relative value within a sector? value is likely to
continue to underperform. the economy is growing. this is the proverbial secular stagnation dating back to the 1930's. the idea is the economy is growing at a pace to that is modest. in that environment, growth stocks actually offer you the benefit of growth in a slow going economy. if the economy is going rapidly, value tends to do better. this environment is consistent with growth doing better than value. to be fair, that has been the better part of 10 years. david w: even when you talk about oil, there's been a lot of innovation in oil and a lot of price reduction. across the entire economy, there are a lot more things being produced for less money as a practical matter, which is a different form of growth.
maybe we are not seeing it in the gdp numbers, but in fact it is there. david k: corporate margins have been expanding for the better part of this cycle for 10 years, and markets are extremely inclined to benefit from lower tax rates. at higher margins has created real benefit for those companies that are asset light. move has beent very significant. you have much better margins. therefore, better income is used to repurchase shares. you have a flywheel of incremental growth because were basically growing revenues, you have higher margins, faster earnings-per-share growth. that tends to attract more investors, and that is the equation. david w: you make a fascinating sort of macro point about the equity markets in this sense. it is also capital light. a lot of the companies growing
and expanding don't need a lot of capital. you've got as many or more dollars chasing less capital , and that will drive up the shares. david k: this is a highly political view in washington, d.c., but most companies stick about their prioritization of spending versus capital spending. then there's research and development, and then there's some mergers, and then dividends. then if we can't find any other use of our cash, companies are buying back stock. on monday when the market dropped, the goldman sachs buyback thought exit fusions increased dramatically. see itegate dollars, we increase meaningfully. companies are sensitive to the level of share prices. they are buying back stock. that's the kind of things
he would hear on an earnings call. david kostin of goldman sachs, thank you so much for joining us. stay tuned for "bloomberg: commodities edge." i will be discussing everything from oil to copper. david w: coming up, seeking peace with uber. more on that next in today's bottom line. this is bloomberg. ♪
david: time now to look at three companies worth watching this morning. first of all, broadcom is in talks to buy a healthy chunk of symantec. it would be their enterprise facing part of the business, as much as $10 billion. it is down just a tad in the premarket. this is a company they tried to buy outright. alix: take a look at zillow.
that stock really getting hammered in the premarket. it disappointed on pretty much all metrics. it's third-quarter productions were below and off of expectations. it was also pretty off of its home flipping business. now you have some analysts saying you want to be a buyer on weakness, but they are worried about pace and profitability. david: and do we want home flipping or not? it didn't work out so well into thousand seven. alix: you've got low rates now, so maybe that will change it. david: third, lyft out with earnings yesterday. they had some good news and did all right. reporter: they did, and i think part of it was driven by price increases and better operational focus, but if a company is trying to optimize for a cost at this stage, it kind of sends a mixed message to me.
ok,t now i think they are but i am looking beyond 2019. this sends a clear message that focuses on margins now, improving profitability. that means they are not going to expand. david: have they really declared peace with uber? jeffrey: they can take the -- mandeep: they have expanded into food delivery. that is the gross part of their business, but they are still focused on -- the growth part of their business, but they are still focused on right changing. alix: and uber got a nice global tax bill cut it was able to negotiate. david: it is extraordinary. alix: it really is. recently it was responding to european crackdown on offshore tax haven and created a $6
billion dutch tax deduction. it is a nice chunk of change. dodeep: i think they will whatever it takes from an accounting standpoint to make it work. uber's strategy is very clear. they want to lower in more a biges and wanted to be platform. david: what do we expect from over today? that's from uber today -- from uber today? wellep: uber will do on the top line. the real focus is uber eats. we think it is going to do better because food delivery , uber is the largest player. there is the international
strategy, so much better when you compare it to lyft. the fact is they are a global player in ridesharing. that puts them in a better spot in terms of accelerating the top momentum. 100% of uber eats comes from my son and his friends. that's what he goes on all the time. alix: [laughter] mandeep, thanks a lot. coming up, you've got a global pile of negative yielding debt plumbing to $15 trillion. u.s. yields joins the bunch. we will break it down with janice henderson -- with gender's henderson -- with john henderson'sus
look at what is happening in the bond market. the mover in europe is in italy. yields up 10 basis points and selling as you have concerns of another potential election that might happen. here in the u.s., a little bit of buying on the margin but still make it nine basis points for the key curve. is this a rebound or are we finding stability? that is a question in the markets. david: let's address that. down is where yields of been heading with a brief yes but -- a brief respite yesterday. here is michael mckee. david.: thank you star wars land do not work for disney. maybe they should have mr. bob's wild ride, maybe overdone. a lot of charts seem to show that. here's one that has caught a lot of people's eye.
two year swap spreads invert. that suggest treasuries are less safe than unsecured assets like libor. people are asking if this could be like other periods and they are looking back at 2016 where we saw much the same thing in the bond market and the all-time lows in 10 years just after the brexit vote. it reversed. the same pattern now. people are thinking maybe we will start to see a comeback. one of the reasons for that is all of the central bank easing that has happened. where will we be in the bond market? we will be in limbo for a while. here is where the fed got into it. all of the data from july is before this new paradigm and all of the data from now on will not be released until september. we have to get into the fourth quarter before we are going to know what is happening in the market. the 30 year and 10 year note
do not tell us much about what will be happening in the future. did the fed save the world, we have to wait to find out? alix: thanks a lot. wild ride. sounds like you visited the economic museum in paris. bloomberg has been speaking to investors about the decline of global yield. here's what they had to say. >> you can argue u.s. rates should be lower. >> i worry about rates in the u.s.. >> people starting to think what is the bond market telling me? >> the short end of the curve is very steep, so we're expecting fed cuts. >> if we do have the fed going to a purebred cutting cycle, that can bring the 10 year closer to 1%. >> we could have a 1% 10 year. >> the equity market has to think about how you will price the pe, how you address allocation in a world 1% lower
tenure. -- 10 year. his officeng us in in newport beach is net routes us -- nick maroutsos. how low can 10 year bond yields go? can go to 1%. the question is the timing. right now the trend is your friend. when mike talks about mr. bonds wild ride it has been a straight shot to the bottom. can we see a bounce? absolutely. if you look the data and the fundamentals and what is happening in the u.s., the fed is looking to cut interest rates , your trade issues, you problems abroad, the u.s. is no longer immune to what is happening globally, and globally we see yields going lower. our view is that bond yields will be trending lower, but we will not see 1% next month or the month after.
this will be a situation where you see things gradually trend lower. david: what is driving the fed and central banks around the world? is it data about global growth, about demand, or data about what the other central banks are doing and they feel compelled to cut so they do not raise? nick: it a mixture of a number of things. you have trade tensions, trade policy used by trump in china as a recipe of forcing the fed into action. china benefits from the fed cutting because they benefit from the lower dollar. the lower dollar has not happened, but the fed is cognizant of that, trump is cognizant of that, and he is driving the wheel to try to force the fed and to further action. europe situations where has slowed down significantly. you see a lot of data out of that region that is for. the talks about another round of qe, whether they will buy
equities, but facing negative rates across the board. u.k. is facing brexit. in asia you have countries like australia and new zealand cutting interest rates. the trend is around easing policy as a result of stimulating the economy but trying to avoid any sort of recession. that trend will continue. michael: let me ask you about two possibilities you could be wrong. suppose the president of china and the united states to come out with a trade deal, and second, if they do not, trade wars should be inflationary and that should be bad for your scenario. what you think of those possibilities? nick: i have been right and wrong plenty of times. i will not my base case is entirely right, i think your argument does make sense, but we are a ways away from that happening. a trade deal looks like it will not happen in another six to
nine months, or even close to the election. based on that alone, the data will be lower, and bond yields will be grinding lower. if we do get a trade deal and it is inflationary, we'll be looking to the equity markets for a guy. you might see long end rates selloff, but the front end will stay pay as well as the fed easing as well as other global central bank easing. that will keep things while anchored. pimco made headlines talking about how we could see negative yield in the u.s.. the neutral rate could be one or below, therefore the fed will have to lower their target rate. you get more qe, you get demographic buying, etc. what you think of that? how to we stay there? nick: it will take quite some time. people need to take a step back. we have run aggressively.
this concept of negative rates in the u.s. or 1% rates has taken on a lot of steam and momentum. in some cases it is justified, but we also need to take a step back and say this could happen over the long-term. this is not her to be something that happens in the next couple of months. the u.s. economy is still doing ok. yes, the fed will be cutting in september and the future, but we are not in a bubble with fixed income. assets are rallying as a result of underlying fundamentals. we ares a reason why here and facing negative rates across the globe. let's look at things macro economically. japan has cut rates to zero 20 years ago based with negative rates for the last three years. they have had accommodating monetary policy for a decade and they have not been able to stimulate the economy for long periods of time. and other powell
central bankers are following the same playbook and expecting a different result. i think we will all end up like japan, not necessarily physical negative rate, but lower rates, lower growth, low returns. michael: let me ask you about the economy being in ok shape. bondpeed of the decline in yields has a lot of people looking at the yield curve and housekeeping got, how negative it got and saying the possibility for recession has moved up. have we changed anything because of the bond market in terms of the economic outlook for the u.s.? nick: i think the economic outlook remains relatively ok. i'm not going to say things are fantastic in the u.s., but compared to the rest of the as onehe u.s. sticks out of the leaders on the growth side of things. growth has been reduced. some of the data, whether it be jobs number slowing down or some of the industrial production data or the pmi, they have
fallen off a little bit, but ultimately i think the consumer is staying strong and it has put the u.s. economy on its back. that will likely continue so long as rate stay low. what does that mean for equity markets? we have seen equity markets fall 5% off of their peak post fed cutting. i look at it as a mild pullback. we were due for a pullback. we cannot move in a straight line up or down. some consolidation makes sense. take a step back. take a deep breath and look to analyze the market based on data going forward. that should be the key function. not whether we get a trade deal. not whether the chinese are manipulating currency. a lot of that is noise and will come back to whether the fed cuts in september, with the expectation is for future cuts, and the data. david: we tend to focus on geopolitical phenomenon such as you describe.
how much of it is just pure demographics? it strikes me in another world where you have rates this low, it would affect the savings rate. traditionally people will save money when they think they can get a return. in fact it does not seem to affect of the savings rate. people need to save the money whatever the right. -- whatever the rate. nick: i think that is exactly the case. it is not about a return on capital, it is a return of capital. you have an aging demographic, particularly in europe and japan. all of these structural macro factors are going to be what pushes rates to zero. it is not going to be trade deals, like i said earlier. more in the case of focusing on the long-term macro situation. alix: to leave you with the not long-term macro situation, you take a look at corporate credit,
the average yield is negative. what is your favorite play in the corporate bond market? nick: that is a tough one. not a lot of low hanging fruit. outt now we've been hanging by owning government duration, and owning duration in countries like the u.s., australia, new zealand, where countries are cutting rates but also have positive yield. us chilean's of benefited from the rba cutting interest rates. infrastructure such as airports and railroads, which have stronger cash flows. also highly rated government issuers and -- highly rated issuers that have some form of government backing. in asian countries, energy, telecom, and banking. david: nick maroutsos and michael mckee, thank you both
you have to be something of a student of the credit markets, , you have totudent be making observations. i want to ask her observation about one of the most noteworthy developments in credit. loan thatillion apollo firm is making to finance the purchase of newspaper company connect -- gannet. this was alone that once upon a time you can only get from a bank. now you can get it from an asset manager. howard: and the bank would syndicated. they are not lend their own money. they would scoop it up rome others. it says there is a lot of money that can be collected by alternative management firms like apollo and oaktree. pension funds cannot make the returns they want. stocks and bonds except that, so
they are looking to alternatives. money is flowing into alternative firms. apollo was able to compete and rent 1.8bility to million. , it ishen you say when because apollo was able to land at a lower interest rate than everybody else. howard: i assume it was competitive. that is a win the auction, by being able to accept less return , presumably less safety. i presume they know what they do or -- what they are doing. they are smart guys. eric: is a loan of that size to an industry like newspapers something a firm like oaktree would have the capacity or the appetite for? howard: we do not concentrate our investments to that extent. i cannot imagine we would ever lend $1.8 billion on anything. we do funds that are $1.8
billion, and we diversify them. we do not have that size or the appetite for concentration. i do not know the credit well enough to know how good a loan it was. eric: it certainly comes at a fetching interest rate. howard: if you look at the interest rate, 11.5% in an environment where the 10 year treasury pays 1.75, you have to assume there was a lot of risk. apollo did -- in terms of interest rate, was low. other people might have wanted 12% or 13%. it tells you that it is a risky loan. eric: do you think the point is to click a handsome coupon, or is it to do what apollo and oaktree have done, which is loan to own? eric: -- howard: i do not know what is on their minds. ,ou do not make new car loans
you do not make loans at 100 cents on the dollar to own, because if you win you end up paying a full price. what stress for control investors try to do is buy it at a discount so they get in at a bargain price. i would be surprised to learn it is loan to own, but depending on how risky the proposition is, i'm sure not getting paid and ending up as an owner must factor into the picture. eric: i am glad you raised distress, because oaktree is in the process of investing one of its newest bonds, and one of the large -- its newest funds and one of largest to date. i believe you allocated $1.5 billion of new money in the first couple quarters of this year. how would you evaluate the distress market? howard: you say new fund. it is four years old.
we raised it in 2015 on a standby basis. we raised of fun for current investing and this fund reserve. we invested the current investment fund and now we're hitting the reserve fund. the fact that we are at 30% invested after this time shows you the going is slow. first of all, the economy is too good. not many companies are getting into trouble. secondly, the capital markets are generous. if the company needs rescue finance, they can get, or refinancing to push off their maturities into the future. this is not the kind of climate in which helped the company's with healthy businesses -- in which healthy companies with healthy businesses get a distress. there is distress in areas like retail and energy, but these are industries with their ups and downs. eric: oaktree has historically
had its greatest successes in time when the economy is not doing so well. it brings to mind your latest memo, and i want to quote directly from it. in it you say, and i want to point out you dedicated quite a bit of time to macro thinking on fed policy. you say "should we be happy to see the fed trying to prolong economic expansion of market when they are already the longest in history? try to produce perpetual prosperity and permanently worn off a correction? it all depends on which hand is doing the weighing. " a somewhat cryptic way of questioning what the fed did at its most recent meeting. howard: i'm never convinced enough i am right to be assertive. i mostly raise questions. it is unusual.
usually what happens is we stimulate the economy what it is doing orlie and we want to wake it -- doing poorly and we want to wake it up from the doldrums. we generally do not stimulate the economy after 10 good years. we usually except there will be cycle and flow to the there might be a justified recession. we have the lowest unemployment rate in 50 years. you usually do not stimulate at that time. the point is that the fed can stimulate. should it do so? is it the fed's job? eric: i get the feeling you do not think it should. howard: i do not think it should. i do not think it is the fed's job to make sure there is never a recession. what the fed chair tends to say. jay powell said last month, and i quote from september 2007,
where they said we will do what it takes to keep the expansion going. is it the fed's job to keep the expansion going forever? i don't think so. if i ran the fed, and i'm not applying for the job, what i would do is when the economy is roaring, i would try to pull it off so there's not much inflation. when it is weak and not creating jobs, i would encourage it. in between, i would leave it alone. if the fed keeps cutting rates, what does that mean for investors? means savers and lenders and people with money are going to have trouble getting good returns. emanate fromturns
the base rate, which is basically what the fed says. the lower it is, the lower the prospect of return on everything. the process of lowering the rates causes assets to inflate. there will be more wealth piled up by the people who have assets , and it will be harder for people who just have a little bit of savings to get a return. eric: we can only imagine what that is going to mean for the 2020 election campaign. thank you much. that is howard marks, cochair oaktree capital, one of the worlds best-known credit investors. alix: thank you very much. 10 year at 1.73. more and that interview, next. if you are jumping in your car, you can listen to bloomberg radio, sirius xm channel 119 and the bloomberg business app. this is bloomberg. ♪
markets. we have a relief rally today. also china ppi overnight. and a signal of reflation and what means will help set the tone tomorrow. david: so much of the markets hinge on what goes on in beijing. what the pboc says or what they wink at. as you pointed out there is a correlation between the s&p and the yen. alix: s&p futures holding onto a rally. willg up next, priya misra be joining jonathan ferro. bond yields stay stubborn at 1.7%. this is bloomberg. ♪ from the couldn't be prouders
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jonathan: the fixation with china's currency easing. u.s. equities finding a firmer footing. the central bank push continues. the philippines becoming the fourth bank this week to cut rates. with 30 minutes until the opening bell, here is your thursday morning price action with futures positive .1%. in the fx market, the euro around 1.12 and treasury yields start to bleed higher, up two basis points, 1.75% is your yield. where did all the bond bears go? >> i think the 10-year is headed back down. >> previous lows of 1.45%. >> the rates market has had quite a run but you can keep going. >> yields can go a lot lower. >>